The Corporate Sustainability Reporting Directive (CSRD) is a significant new EU directive that fundamentally changes sustainability reporting for companies in the European Union. The CSRD aims to improve the transparency and comparability of sustainability information and thereby makes a substantial contribution to a more sustainable economy. In this blog, you will learn everything that companies need to know about the most important aspects of the CSRD reporting obligations.
The CSRD: Background Information
The CSRD is the successor of the Non-Financial Reporting Directive (NFRD), which has been in force since 2014. The NFRD obliged certain large companies to publish non-financial information on environmental, social and governance (ESG) aspects. However, the NFRD was quickly criticized for only requiring a small group of companies to report and for not having more far-reaching reporting obligations. The CSRD was proposed by the European Commission in April 2021 in order to close these gaps and improve the quality and comparability of sustainability reports.
Who is affected?
The CSRD significantly expands the group of companies subject to reporting requirements, which means that many companies that previously did not have to prepare non-financial reports are now also subject to reporting requirements. These now include:
Large companies that meet at least two of the following three criteria:
more than 250 employees,
more than 50 million euros in turnover and/or
a balance sheet total of more than 25 million euros
Listed companies, including small and medium-sized enterprises (SMEs), with the exception of micro-enterprises, provided they meet at least two of the following criteria:
more than 10 employees
more than 900,000 euros in turnover and/or
a balance sheet total of more than 450,000 euros
Companies from countries outside of the EU with at least one subsidiary or branch in the EU with a net turnover of more than EUR 150 million and exceed certain thresholds.
Reporting obligations under the CSRD are being rolled out in stages in order to give companies sufficient time to prepare. Different deadlines therefore apply for each of the classes of companies mentioned here.
Timeline and implementation
The CSRD came into force at the EU level on January 5, 2023 and had to be transposed into national law in all EU member states within 18 months. In Germany, the Federal Ministry of Justice published the draft bill for the CSRD Implementation Act in March; associations and affected parties had until April 19 to comment on the draft. Once the law enters force the following regulations will apply in Germany, and other EU member states. The dates stated refer to the respective financial year for which reporting is required - the reporting obligation comes into force in the following year:
from 2024
Large companies that are already subject to the NFRD must report in accordance with the new CSRD requirements for the first time.
from 2025
All other large companies under accounting law will be added.
from 2026
Listed small and medium-sized enterprises (SMEs), small credit institutions and insurance companies will have to report.
from 2028
Companies from other countries must also comply with CSRD reporting requirements. This applies if they have at least one subsidiary or branch in the EU with a net turnover of more than EUR 150 million and exceed certain thresholds.
What must be reported on under the CSRD?
An important element of the CSRD is the definition of uniform reporting standards with the twelve European Sustainability Reporting Standards (ESRS). These set out detailed reporting requirements, which must include both qualitative and quantitative data. Companies must disclose information in the three areas of environmental, social and governance (ESG). The ESRS define standards for reporting on the following topics, among others, in the three sub-areas:
Environment
Greenhouse gas emissions: Information on direct and indirect emissions (Scopes 1, 2, and partially Scope 3)
Energy Consumption: Information on total energy consumption and the share of renewable energies
Water and Resource Use: Data on water use, waste management and resource efficiency
Biodiversity: Impact of business activities on biodiversity and protective measures taken, and vice versa
Environmental Pollution: Data on emissions into the air, water and soil as well as measures to prevent and reduce them
Social
Working Conditions: Information on wages, working hours, employment conditions and employee rights
Diversity and Inclusion: Measures to promote diversity and equal opportunities in the company
Health and Safety at Work: Statistics on accidents at work and measures to improve occupational safety
Training and Development: Investment in employee training and professional development
Governance
Corporate Ethics: information on ethical principles and rules of conduct within the company
Anti-corruption: Measures to prevent and combat corruption and bribery
Internal Controls and Risk Management: Description of internal control systems and risk management
The exact areas to be reported on for each individual company are determined individually as part of a double materiality assessment. This assessment defines which of the various ESRS are to be applied in each individual case and is therefore of great importance for the CSRD process.
Benefits of the CSRD
Compliance with CSRD reporting obligations offers companies several benefits. Through comprehensive and transparent reporting, they can strengthen the trust of investors, customers and other stakeholders. This leads to an improved brand image and can promote long-term business relationships. Sustainable business practices also give companies a competitive advantage and open up new market opportunities, as sustainability is an increasingly decisive criterion in consumers' purchasing decisions and in the awarding of contracts.
Thorough sustainability reporting also helps companies to identify environmental, social and governance risks at an early stage and adapt their risk management strategy accordingly. In the long term, they can save costs through sustainable practices and processes, for example through energy and resource efficiency and by avoiding environmental damage and the associated costs. These benefits illustrate that compliance with CSRD reporting requirements is not only a regulatory obligation, but also an opportunity for companies to operate in a more sustainable and future-proof way.
Mastering the challenges of CSRD reporting requirements with First Climate
The CSRD presents companies with new challenges, but also offers significant opportunities to improve sustainability performance and strengthen a market position. With early and careful preparation, you can successfully implement the new reporting requirements and benefit from the advantages. First Climate is happy to support you with CSRD consulting. We can help you with the double materiality analysis, gap analysis and the development of a concrete action plan. Get in touch with us right away!
You can find out more about the First Climate service offerings relating to CSRD reporting on our CSRD website.
6 Questions about the CSRD
What does the CSRD stand for?
CSRD stands for Corporate Sustainability Reporting Directive.
Why was the CSRD introduced?
Which companies must comply with the CSRD reporting obligations?
Is CSRD compliance monitored?
What are the differences between the NFRD and the CSRD?
What role does digitalization play in the implementation of the CSRD?
About the Author
Jonathan Schwieger is a corporate climate strategy consultant and Head of First Climate’s GHG Accounting and Climate Reporting practice. In this capacity, he supports private sector clients in realizing their climate ambitions and leads the team’s activities related to carbon footprint assessments as well voluntary and compliance climate-related reporting. Prior to joining First Climate in 2015, Jonathan worked for the Clean Energy Trust (CET) in Chicago, a regional cleantech impact investor and business accelerator.
